Fintech Lenders Keeping Close Eye on IRS Data Sharing Bill

By Lydia Beyoud

Marketplace lenders and their bank partners are keeping a close eye on a bill to make it easier for the Internal Revenue Service to share taxpayer data they say is critical to their industry.

The bill received support during a House Ways and Means member hearing on legislation to improve tax administration through technology, as well as a fintech hearing in a House Financial Services subcommittee.

During the tax hearing, Rep. David Schweikert (R-Ariz.) called on his colleagues to embrace “modern technology and this thing called the internet to make it more efficient and more simple for Americans” to get a loan.

The IRS Data Verification Modernization Act (H.R. 3860) and its Senate companion (S. 1958) would require the Internal Revenue Service to provide a fully automated software protocol for companies to immediately retrieve taxpayer information to verify income. Currently, the process for the IRS to release taxpayer data requires a faxed form and can take days or weeks to turn around.

While the bills have bipartisan support in both chambers, including from its two sponsors, Rep. Patrick McHenry (R-N.C.) and Sen. Cory Booker (D-N.J.), they’ve lingered in their respective committees, House Ways and Means and Senate Finance. But the fintech industry believes the unflashy legislation holds a great deal of promise in changing consumer access to credit and potentially boosting revenues for their industry. Representatives for coalitions of fintech companies, including Amazon.com Inc., Intuit Inc., Google parent Alphabet, Inc., Funding Circle, Prosper, LendIt, Peer Street, and Upstart asked House lawmakers to approve the bill during the Jan. 30 fintech hearing.

“The value of this small technology upgrade far exceeds simply speeding up verification,” Sam Hodges, co-founder and US managing director for Funding Circle, an online small-business lender, told Bloomberg Law. That’s because it would give lenders a better sense of a company or individual’s creditworthiness, potentially with better rates for consumers.

“More and better data leads to better underwriting and instant, secure availability of tax return transcripts through an API would drive higher approval rates, better pricing, and faster decisioning,” Hodges said via e-mail.

Support From Banks

Banks that partner with fintech companies also support the legislation. “The IRS rule is really critical,” Cross River Bank’s President and CEO Gilles Gade told Bloomberg Law.

The 10-year-old, single-branch bank in Teaneck-N.J., has partnered with several marketplace lenders, including Upstart and Green Sky Credit, providing a fast-track for the fintech firms to hop onto the rails of the banking system and the regulatory compliance inherent to accessing borrowers. Cross River Bank has benefited from the fintechs’ nationwide reach and marketing savvy.

The IRS data verification bill would avoid loan stagnation as underwriters go through what’s currently a lengthy process of application processing, data validation and loan authorization, Gade said. “The sale cycle of loans could be shortened dramatically,” he said.

The legislation, which Gade called “critical” to the marketplace lending industry, would also help the agencies “get on the same page as the fintech players, to be able to enable them to better serve consumers and businesses,” Gade said.

To contact the reporter on this story: Lydia Beyoud in Washington at lbeyoud@bloomberglaw.com

To contact the editor responsible for this story: Michael Ferullo at mferullo@bloomberglaw.com

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